By MICHELE F. MIHALJEVICH

Indiana Correspondent

FORT WAYNE, Ind. — New foreign buyers for U.S. agricultural goods are crucial as current trade policies threaten the nation’s standing with traditional markets, the director of Purdue University extension said earlier this month.

“We’ve got to diversify our markets overseas,” explained Jason Henderson, also associate dean in Purdue’s College of Agriculture. “India is a good example. There’s already been some restructuring of pork exports. We’re replacing Mexico with Japan, and we’re replacing China with South Korea.”

The recently negotiated United States-Mexico-Canada Agreement will have a $450 million impact on U.S. agriculture, he noted. When combined with retaliatory tariffs in place on Canada (-$1.8 billion), China (-$7.9 billion) and Mexico (-$1.9 billion), the overall net impact to U.S. agriculture is in the negative at -$11.1 billion.

“It’s going to be a volatile winter in terms of (commodity) prices,” Henderson said. “Will the U.S. remain the supplier of first or last choice for the Chinese market? If not, that means we’ll have even more volatility. We’re going to have a lot more volatility because potentially we’re not the supplier of first choice anymore.”

He discussed the farm economic outlook during a presentation Dec. 7 at the Indiana Farm Bureau’s annual state convention in Fort Wayne. What the agricultural economy is seeing today is similar to previous times, he pointed out. Ag’s up and down cycles have been driven by trade and monetary policy.

For example, in the 1920s, farming was impacted by higher interest rates and lower trade. In the 1980s, higher interest rates and a grain embargo affected agriculture.

“This year was supposed to be the bottom, and then we were going to lift off,” Henderson explained. “I’ve been spending a lot of time talking to bankers. How many of you (in his audience) are preparing for a wonderful, delightful conversation with your banker? I don’t see many hands. They’re not looking forward to it either.

“Farm finances are eroding further. Repayment rates are deteriorating in the Corn Belt. When you meet with your banker, know your cost of production, have a marketing or business plan in place and get a farm loan guarantee set up.”

The Federal Reserve will probably be “slow and steady” in any interest rate increases it makes over the next year, said Henderson, a former vice president with the Kansas City Fed branch. “If interest rates went up 7 percent overnight, that would hurt your operation. But if they said they’d do that in three to four years, we might be able to deal with it.”

When considering interest rate changes, the Fed watches wages and inflation. Over the last decade, wages have been fairly flat, Henderson said. The agency also keeps an eye on housing prices as a measure of inflation.

“The home price index is higher than earnings,” he noted. “It was lower than earnings after the Great Recession. I think we’ll see wages going up and a softening in the housing market. If the Fed wants some softness, it will raise interest rates just a little bit.”

Trade tensions have shaken global economies worldwide, Henderson said. For example, in 2018, growth in the United States was stronger than expected. In July, the economy was forecast to grow 2.7 percent in 2019; in October, the forecast was for a 2.5 percent jump. In Latin America, forecasts in April called for 2.2 percent growth. By October, the forecast was for 1.4 percent growth.

“I think 2019 is going to look a lot like 2018 unless we get tariffs straightened out and prices pop,” he said. “In general, young and beginning farmers are struggling. They don’t have equity and collateral. Smaller farms have larger losses, which is caused by efficiency of scale.”